1.9 Query
Disclosure of interest accrued but not due on loans in the balance sheet.
1. A public sector corporation, registered under the Companies Act, 1956, has issued secured 7 years redeemable non-convertible bonds during 1986-87. The bonds were allotted on 7th November, 1986. A portion of such issue is under Cumulative Interest Scheme. Thus, interest is payable only on maturity of bonds. The nominal value of the bonds as well as the interest accrued thereon have been secured by the first charge through equitable mortgage on certain assets of the corporation. Interest accrued but not due on bonds issued under Cumulative Interest Scheme has been shown separately under ‘Secured Loans’ in the balance sheet of the corporation as at 31st March, 1987.
2. The querist has mentioned that a controversy arose on the above mentioned manner of presentation in view of the fact that Part I of Schedule VI to the Companies Act, 1956, provides that (i) interest accrued and due on secured loan should be included under the appropriate sub-heads under the head “Secured loans”, (ii) interest accrued but not due on loans should be classified under ‘Current Liabilities’,
3. The querist has further mentioned that, normally, current liability means that liability which is due for payment within a short time, i.e., 12 months period. This definition of the current liability, according to the querist, has also been indicated by the Institute of Chartered Accountants of India. However, the said term has not been defined in the Companies Act.
4. The querist has expressed his view that interest accrued on bonds issued under the Cumulative Interest Scheme, which is not due for payment in one year time from the date of balance sheet, should not be shown under ‘Current Liabilities and Provisions’. The interest is payable presently after 61/2 years which stands reduced with the passage of time.
5. The querist has sought the opinion of the Expert Advisory Committee as to whether the practice followed by the corporation regarding disclosure of interest accrued but not due on loans, is proper.
Opinion February 13, 1988
1. The Committee is of the view that wherever the Companies Act, 1956, specifically lays down in Schedule VI thereto, a manner of disclosure of an item in the annual accounts, a company has no option but to follow that manner of disclosure, irrespective of any other possible treatment.
2. In view of the above, the Committee is of the opinion that the Corporation in question should disclose ‘interest accrued but not due’ under ‘Current Liabilities’ as required under Part I of Schedule VI to the Companies Act, 1956. It may however, be prudent to disclose as an additional information a note to the balance sheet stating the fact of the due date of payment of interest. In view of this, the manner of disclosure presently followed by the said corporation, is not proper.
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